What does lower interest rates encourage consumers to do?

Interest rates influence borrowing costs and spending decisions of households and businesses. Lower interest rates, for example, often encourage more people to obtain a mortgage for a home or to borrow money for an automobile or home improvements .

Do low interest rates tend to entice investors into the stock market where they can achieve better returns?

A decrease in interest rates will prompt investors to move money from the bond market to the equity market . The influx of new capital causes the equity market to rise.

Who benefits from lower interest rates?

A low interest rate environment is great for homeowners because it will reduce their monthly mortgage payment. Similarly, prospective homeowners might be enticed into the market because of the cheaper costs. Low interest rates mean more spending money in consumers' pockets.

How does reducing interest rates encourage consumers to?

Lower interest rates decrease the cost of borrowing money, which encourages consumers to increase spending on goods and services and businesses to invest in new equipment .

What stocks will benefit from lower interest rates?

Growth stocks . As mentioned before, lower rates typically benefit growth stocks by reducing borrowing costs and increasing the present value of future earnings. That's why you'll often see growth stocks, such as techs, rally when rate cuts may be on the table.

How to profit from falling interest rates?

The following assets tend to perform well when rates decline: Bonds: Bond prices move for many reasons, but one of the most important is changes in prevailing interest rates. ... Preferred stocks: Similar to bonds, preferred stocks typically pay a fixed return and can be redeemed. More items... Jul 1, 2024

Who benefits when yields or interest rates are low?

When yields or interest rates are low, it typically benefits borrowers more than lender ...

What might a decrease in interest rates encourage consumers to do?

Lower rates make borrowing money cheaper . This encourages consumer and business spending and investment and can boost stock prices. Lower rates can also lead to inflation, which undermines the effectiveness of low rates. Higher rates discourage spending and can depress company returns and, therefore, stock prices.

How do low interest rates affect customers?

When interest rates go up, consumers may be more attracted to saving dollars that can earn higher interest rates rather than spend. When rates go down, people may no longer wish to save, but instead spend and invest, even taking out loans to consume at low interest rates .

What are the positive effects of low interest rates?

Generally speaking, lower interest rates boost the value of wealth such as pensions or housing, reduce the cost of borrowing money, and make saving money less rewarding .

What is the impact on consumers of a decrease in interest rate?

Lower interest rates encourage consumption and discourage saving because there is less point in saving money. When interest rates decrease, it becomes cheaper for individuals to borrow money, which can encourage them to consume more.

Channeling The Energy From Lower Interest Rates | Trading Places with Tom Bowley (2024)

The 10-year treasury yield ($TNX), and its recent decline, is certainly aiding, at least in part, the recent surge in U.S. equities. After hitting 5.0% on October 23rd, the TNX has been in a steady decline. As I see it, we’ve got further downside in the yield based on the confirmation of a head & shoulders top:

The setup was there. The confirmation occurred on the breakdown below neckline support. The ultimate measurement beneath the neckline is equal to the distance from the top of the head (5.00%) to the neckline at roughly 4.55%. That would take us to 4.10% or thereabouts. I see a couple yield support levels at 4.00% and 4.10%, so this head & shoulders measurement would take the TNX down to this area of yield support.

This top in interest rates occurred close to one month ago. To understand which areas the big Wall Street firms are rotating to, I simply look at a 1-month summary of our Relative Industry Group ChartList, available to all of our annual members at EarningsBeats.com. Here are the groups most benefiting over the past month:

Trade what you SEE, not what you’re hearing. Most of the CNBC rhetoric is worthless. If you want to trade or invest with more success, you need to invest and trust in those interested in helping you succeed. CNBC wants you to watch or click. As brilliant as Jim Cramer is, he ain’t a market technician. He waffles more than IHOP. If the stock market goes up 5 days in a row, Jim’s as bullish as they get. And then we see a drop of 5 days in a row and Jim thinks the sky is falling. He has little conviction, which makes trading very difficult.

With that brief rant out of the way, look at the last month’s leading industry groups. All 10 are part of our three key aggressive groups – technology (XLK), consumer discretionary (XLY), and communication services (XLC). 7 of the top 8 industry groups are in the XLY. Ask yourself one simple question. Why are the big Wall Street firms pouring their resources into consumer discretionary stocks? If you were bracing for the nasty recession that all the talking heads keep yapping about, would you be jumping into discretionary stocks with both feet? This is how we are all brainwashed by the media. WAAAAY too much time is spent on the scary stories to drive up viewership and not nearly enough time is spent on educating the masses. You don’t pour your money into the very stocks that would be bludgeoned by a recession. Instead, Wall Street is prepping for a very bullish move and you should too.

The top group, by a mile, is home construction ($DJUSHB). It’s somewhat counterintuitive, but you need to keep historical tendencies in mind. While you might think that the colder winter months might lead to an underperforming DJUSHB, the opposite is actually true. Check out the DJUSHB historical performance over the past 20 years:

Now you might understand why Wall Street is secretly moving into home construction stocks. Yes, mortgage rates are dropping, but this is a 20-year history of relative performance. From the above, here are your three best months of relative performance of home construction:

January: averages outperforming the S&P 500 by 3.8%
December: averages outperforming the S&P 500 by 2.7%
November: averages outperforming the S&P 500 by 1.8%

That’s total average outperformance for these 3 months of 8.3%. The other 9 months COMBINED average UNDERperforming by 4.8%. I cannot overstate the importance of historical knowledge.

I am still offering FOR FREE critical historical stats of the S&P 500. You’re not going to see this on CNBC. I doubt you’re going to see it anywhere. But we do A LOT of historical research at EarningsBeats.com and this information will help you trade/invest more successfully. Simply CLICK HERE and download this 7-page PDF. It’s yours totally FREE.

Channeling The Energy From Lower Interest Rates | Trading Places with Tom Bowley (2024)

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